Compensation for Economic Disparity Post Separation
Feb. 20, 2020
"Economic disparity" used in the context of relationship property refers to the difference in income and/or living standards between former spouses at the end of a relationship, as a result of their roles within the relationship.
For example, a couple may decide that one spouse (Spouse A) will give up their professional career in order to take on the role of a full-time caregiver for the couples' children. The other spouse (Spouse B) continues to work and climbs the corporate ladder. If the relationship then ends 5 years later, Spouse A will have a substantially lower income earning trajectory than they would otherwise have had due to the division of functions within the relationship. This lower earning trajectory will result in lower income/living standards than Spouse B.
Under sections 15 and 15A of the Property (Relationships) Act 1976, the court has powers to compensate the disadvantaged party in either money or a transfer of relationship property. These sections aim to recognise that a division of assets often fails to achieve substantive fairness going forward if one party has diminished earning capacity. This compensation is distinct from spousal support or maintenance, although practically there is some overlap.
Maintenance payments are ongoing payments which look to the future to provide for the income needs of a former spouse as they get back on their feet. Economic disparity is instead a one-off payment or adjustment of relationship property focused on residual inequality resulting from the relationship. As there is some overlap, an award of an economic disparity payment would be considered when assessing the need for spousal maintenance, and vice versa.
Section 15 is the main provision under which a person may seek compensation for economic disparity. This section allows the court to adjust shares in the relationship property for the purposes of compensation where the income or living standards of one spouse are likely to be substantially higher than the other as a result of the division of functions within the relationship.
Section 15A extends this where economic disparity results from the division of functions within a relationship, and the better-off spouse owns separate property which has increased in value during the relationship due to their own actions. Compensation under this section can be made out of separate property, however actions under s 15A are rarely successful.
Even once a party has proved that there is likely to be disparity, and the causal connection between that disparity and the relationship, the court still has a discretion as to whether an award will be made. A decision under this discretion will consider likely income earning capacity following the relationship, care of any dependent children during the relationship, and any other relevant circumstances. The Court of Appeal in X v X [Economic Disparity]  NZCA 339 refers to this discretion in the context of the "overall fairness of an award", which indicates the court may take a broad approach to consider if the payment would be fair in the wider context of the relationship. Any award would be dependent on the facts and the circumstances of the relationship.
Economic disparity payments fit into the broader scheme of relationship property. If you would like more information on the division of relationship property, separation, economic disparity or advice on your circumstances, contact the experienced team at firstname.lastname@example.org.
Disclaimer: The information contained in this article is general in nature and not tailored to your personal circumstances. It is only current as at the date posted and should not be relied upon as legal advice. If you require legal advice, please contact us for further assistance.